Internal Service FundsLearning ObjectivesPurposeGoals of ISFsGeneral PrinciplesCreating an ISF: Transfer from GFCreate an ISF: Long-Term LoanCreate an ISF: Issue BondsCreate an ISF: General Obligation BondsCreate an ISF: General Obligation Bonds (continued)Create an ISF: Transfer of Capital AssetsSpecial Notes on This TransferPricing PoliciesPricing MethodsRelation to BudgetISF Accounting IllustrationsCAEF Buys Equipment & SuppliesCAEF Pays Salaries & WagesCAEF Pays for UtilitiesCAEF Records DepreciationBillings to Other DepartmentsRoutine Voucher PaymentsCollections from Other DepartmentsPaying General Expenses & Using SuppliesYear-end AccrualsCAEF Financial StatementsCentral Stores FundCSF Inventory AcquisitionPerpetual Inventory ProceduresInventory IssuedOverhead ExpensesPhysical InventoryRecording Inventory ShortageSelf-Insurance FundConsolidating Risk Financing ActivitiesGeneral FundInternal Service FundRequirements in Using ISFsAccounting Aspects for SIFsRevenue RecognitionExpense RecognitionEstablish SIFBillings to DepartmentsCollections of BillingsPurchase of InvestmentsPaid Premiums to InsurersPayments to Settle ClaimsAccruing Probable Losses and Paying Administrative ExpensesAccruing Interest on Investments & Recording Change in Fair ValueDisposition of Increase/Decrease in Net AssetsReasons for Building Net Asset BalancesInternal Service FundsInternal Service FundsChapter 11Chapter 11Learning ObjectivesLearning ObjectivesUnderstand nature Understand nature and usage.and usage.Understand applicable Understand applicable accounting principles.accounting principles.Understand pricing Understand pricing policies and methods.policies and methods.Prepare basic journal Prepare basic journal entries.entries.Prepare financial Prepare financial statements.statements.Understand unique Understand unique aspects of self-aspects of self-insurance funds.insurance funds.Understand problems Understand problems associated with associated with significant accumulated significant accumulated increases or decreases increases or decreases in total net assets.in total net assets.PurposePurposeTo finance, administer, and account for To finance, administer, and account for departments or agencies whose departments or agencies whose exclusive or nearly exclusive mission exclusive or nearly exclusive mission is to provide goods and services to is to provide goods and services to the government’s other departments the government’s other departments on a on a cost reimbursementcost reimbursement basis. basis.Goals of ISFsGoals of ISFsAttain greater economy, efficiency, Attain greater economy, efficiency, and effectiveness in acquisition and and effectiveness in acquisition and distribution of common goods and distribution of common goods and services used by other departmentsservices used by other departmentsFacilitate the equitable sharing of Facilitate the equitable sharing of costs among departments servedcosts among departments servedGeneral PrinciplesGeneral PrinciplesMeasurement Focus – economic Measurement Focus – economic resourcesresourcesBasis of Accounting – accrualBasis of Accounting – accrualCreating an ISF:Creating an ISF:Transfer from GFTransfer from GFGeneral FundGeneral FundTransfer to ISFTransfer to ISFCashCashInternal Service FundInternal Service FundCashCashTransfer from GFTransfer from GF50,00050,00050,00050,00050,00050,00050,00050,000Create an ISF:Create an ISF:Long-Term LoanLong-Term LoanGeneral FundGeneral FundAdvance to ISFAdvance to ISFCashCashUnreserved Fund BalanceUnreserved Fund BalanceReserve for Advance to ISFReserve for Advance to ISFInternal Service FundInternal Service FundCashCashAdvance from GFAdvance from GF50,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,00050,000Create an ISF:Create an ISF:Issue BondsIssue BondsCashCashBonds PayableBonds Payable100,000100,000100,00100,0000Create an ISF:Create an ISF:General Obligation BondsGeneral Obligation BondsGeneral FundGeneral FundCashCashOFS – Bond PrincipalOFS – Bond PrincipalTransfer to ISFTransfer to ISFDue to ISFDue to ISFGeneral Long-Term General Long-Term LiabilitiesLiabilitiesNet Assets – UnrestrictedNet Assets – UnrestrictedBonds PayableBonds Payable100,000100,000100,000100,000100,000100,000100,000100,000100,000100,000100,000100,000Create an ISF:Create an ISF:General Obligation Bonds General Obligation Bonds (continued)(continued)Internal Service FundInternal Service FundDue from GFDue from GFTransfer from GFTransfer from GF100,000100,000100,000100,000Create an ISF:Create an ISF:Transfer of Capital AssetsTransfer of Capital AssetsGeneral Capital AssetsGeneral Capital AssetsNet Assets – Invested in Capital Net Assets – Invested in Capital AssetsAssetsAccumulated Depreciation – Accumulated Depreciation – EquipmentEquipmentEquipmentEquipmentInternal Service FundInternal Service FundEquipmentEquipmentAccumulated Depreciation – Accumulated Depreciation – EquipmentEquipmentRevenues – Capital ContributionsRevenues – Capital Contributions18,00018,00012,00012,00030,00030,00030,00030,00012,00012,00018,00018,000Special Notes on This Special Notes on This TransferTransferNo entry in GF since asset is not accounted No entry in GF since asset is not accounted for therefor thereAsset may be written down prior if fair value Asset may be written down prior if fair value is less than net book value (NBV)is less than net book value (NBV)Reclassification is a Capital Contribution in Reclassification is a Capital Contribution in ISF – may become a transfer when ISF – may become a transfer when government-wide statements are preparedgovernment-wide statements are preparedAsset could be accounted for at NBV in ISF, Asset could be accounted for at NBV in ISF, but this entry is usual practice to maintain but this entry is usual practice to maintain audit trailaudit trailPricing PoliciesPricing PoliciesTypical choicesTypical choicesHistorical costHistorical costDirect cost, when other costs are Direct cost, when other costs are insignificantinsignificantISFs usually have a monopoly, so ISFs usually have a monopoly, so pricing needs to be monitored closelypricing needs to be monitored closelyExcessive charges Excessive charges mustmust be avoided be avoidedPricing MethodsPricing Methods1.1.Predetermined rates – so much per page, Predetermined rates – so much per page, mile, or ordermile, or order2.2.Charge departments